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Harry Markham is a chartered financial analysist (CFA) that now works for Investment Consulting Associates (ICA), a firm which offers advice to pension funds, after earning his Master of Finance in 2004. Mr. Markham had an increasing concern over the valuation of public sector pension fund liabilities. Markham felt professionally conflicted as he prepared for a meeting with the board of trustees of a state pension fund. When he himself valued the labilities using the principles of valuation and financial analysis he learned, he would come up with figures twice as large as those that had been reported by the funds. He was not allowed to make adjustments to the official numbers and neither his firm nor clients questioned the figures. The firm did not want to upset and potentially lose the board as a client, so they neglected to inform them that the fund’s liabilities were a much larger figure than being projected by the Government Accounting Standards Board (GASB) rules. Mr. Markham was unsure how he could possibly give proper investment advice based on financials that were utterly deceptive and false. Which leads to the dilemma he now faces as to who his loyalty must primarily lie with: loyalty to his firm, loyalty to his client, the board of trustees and those others that make decisions on investments for public pensions, or loyalty to the pensioners themselves. (John Minaham)
After analyzing and evaluating the situation I have come to the determination that Mr. Markham must ultimately follow the proper procedures set in place to navigate through these situations despite any personal ramifications that may ensue. Markham affirms his compliance with the Code of Ethics and the Standards of Professional Conduct on a yearly basis and should not put himself in a position to have to deceive the institute. A chartered financial analyst (CFA) must not knowingly make any misrepresentations in investment analysis recommendations. (John Minaham) Failure to do so could lead to disciplinary action being taking by the CFA Institute resulting in his membership being revoked, or the right to use the CFA designation being revoked. Actuaries followed the rules established by the Government Accounting Standards Board (GASB) in valuing liabilities, however the results led to an astronomical discount rate proposal that could only be described as wishful thinking. I believe that it is evident that changes need to be made to ensure that valuations reflect realistic expectations on future returns. Many factors need to be taken into account and considered when discounting the cash flow of liabilities, like the current and potential financial climates to ensure pensions can be fulfilled. Consideration should be made when investments could negatively affect other individuals and their livelihood. The critical thinking strategy that I have chosen to utilize is evaluation. Evaluating is the process of assessing, making judgements, determining the value of resources, and making conclusions based on the ideas, facts, or information presented.
My evaluation has led me to believe that Mr. Markham not only has a duty to inform his firm on his responsibility to uphold ethical standards and the integrity of the CFA Institute, he also has a duty to raise the issue at hand with his clients and potentially the pensioners if the board of trustees chose to overlook his findings. He must also report any violations of the Code of Standards even if this means reporting the firm’s actions at large. The 2008 recession was used as an example of what happens when individuals collectively chose to remain silent. This example offers concrete evidence as to what can result when negligence and delinquency is adopted. I recommend that Mr. Markham meet with those in the firm that oversee and are involved with this particular case. He should present his findings and the accurate figures he came up with after he valued the liabilities to the firm. He should then urge his colleagues and superiors to point these inaccuracies out to their clients. If the firm choses to disregard his recommendation he should then move to inform either the clients, pensioners or appropriate authorities on this violation. When individuals do not exercise their duties to uphold ethical standards, especially those in leadership positions, it leads to sectors being discredited, an atmosphere of negligence and misconduct is created, which then trickles into every branch and can ultimately lead to another financial crisis or imprisonment for those who commit misconduct.
References
- John Minaham, & Reavis, C. (n.d.). Harry Markham’s Loyalty Dilemma. Retrieved Febuary 26, 2020 from MIT Management Sloan School: https://mitsloan.mit.edu/LearningEdge/Leadership/HarryMarkhamA/Pages/Harry-Markham-Loyalty-Dilemma-A.aspx
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